After the Chinese government hacked Google to steal Google's proprietary code and access dissident e-mail accounts, Google left China. As economist Peter Morici noted at the time in a Seeking Alpha commentary (Google and the Larger Chinese Challenge):

To sell in China, Beijing requires foreign companies to produce in China through joint ventures and then transfer prized technologies to local partners. Now, having extracted the knowhow it needs, China is tightening the noose on foreign companies, causing them to consider withdrawing and leaving behind formidable new competitors.

Google CEO Eric Schmidt is continuing to call for a United States response to the China challenge. He served on the President's Council of Advisors on Science and Technology (PCAST) where he helped put together an exellent Report to the President on Ensuring American Leadership in Advanced Manufacturing, about how to help American hi-tech companies compete. That report made many excellent recommendations, including that the U.S. lower its excessively high corporate income tax and that the U.S. help small hi-tech firms share research facilities, a technique that was successfully pioneered during the Reagan administration.

Now, According to a pre-publication review (Exclusive: Eric Schmidt Unloads on China in New Book), Google CEO Eric Schmidt is calling for the United States to meet China's industrial espionage challenge in his new book, Digital Age, co-written by Jared Cohen, who runs Google Ideas. Here is a selection from the review:

China, Schmidt and Cohen write, is “the world’s most active and enthusiastic filterer of information” as well as “the most sophisticated and prolific” hacker of foreign companies. In a world that is becoming increasingly digital, the willingness of China’s government and state companies to use cyber crime gives the country an economic and political edge, they say.

“The disparity between American and Chinese firms and their tactics will put both the government and the companies of the United States as a distinct disadvantage,” because “the United States will not take the same path of digital corporate espionage, as its laws are much stricter (and better enforced) and because illicit competition violates the American sense of fair play,” they claim.

“This is a difference in values as much as a legal one.”

Schmidt and Cohen also point out that China is trying to gain control over the Internet by out-competing U.S. giant Cisco Systems with its own proprietary system that only Chinese companies will be able to service and control. According to the review:

Most of the world’s IT systems were once based almost entirely on Western infrastructure, but as Chinese firms get more competitive, that is changing, and not necessarily for the better, they say:

In the future superpower supplier nations will look to create their spheres of online influence around specific protocols and products, so that their technologies form the backbone of a particular society and their client states come to rely on certain critical infrastructure that the superpower alone builds, services and controls.

Chinese telecom equipment companies, rapidly gaining market share around the world, are at the front lines of the expansion this sphere of influence, they say: “Where Huawei gains market share, the influence and reach of China grow as well”.

Schmidt and Cohen are calling for American corporations and the American government to respond jointly. It is vital that they do so. China is not only taking away the technologies of America's corporations. It is also taking away America's economic future.

It is vital that we secure our proprietary technologies. In order to sell to the growing Chinese market, the Chinese government forces American companies to locate in China and share their technologies with Chinese competitors or have them stolen through industrial espionage.

But WTO rules let any trade deficit country adopt a Scaled Tariff to balance trade. China would have to open its markets to American products in order to continue to access American markets for Chinese products.

American corporations would then be able to keep their own technologies in the United States, where intellectual property could be protected, and still be able to sell to China's growing markets. Not only that, but the investment in American manufacturing that would take place would make America a growing marketplace, not just China.

[An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

Journal of Economic Literature:

[Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

Atlantic Economic Journal:

In Trading Away Our Future Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]